An External Asset Manager (EAM) in banking refers to a wealth management professional or firm that operates independently from a specific bank or financial institution. They provide investment advice and manage assets on behalf of clients, using the banking infrastructure as a custodian for those assets.
Key Aspects of EAMs:
- Independence: EAMs are not employees of the bank where the client's assets are held. This independence allows them to offer unbiased investment advice, theoretically free from the pressure to promote the bank's own products.
- Relationship with Banks: EAMs partner with banks (or multiple banks) for custodial services, execution of trades, and access to research. The client's assets are held at the bank, but the EAM makes the investment decisions.
- Client Focus: EAMs typically focus on building long-term relationships with clients and providing personalized investment solutions tailored to their specific needs and financial goals.
- Fee Structure: EAMs typically charge fees based on a percentage of the assets they manage (AUM) or through performance-based fees.
How EAMs Operate
Here's a breakdown of a typical EAM's operational model:
- Client Onboarding: The EAM works with the client to understand their financial situation, risk tolerance, and investment objectives.
- Investment Strategy Development: Based on the client's profile, the EAM develops a tailored investment strategy.
- Bank Selection: The EAM and client agree on which bank(s) will serve as custodian for the client's assets. Factors include the bank's reputation, services offered, and fees.
- Account Setup: The client opens an account at the selected bank.
- Asset Management: The EAM manages the client's assets within the account at the bank, executing trades and making investment decisions according to the agreed-upon strategy.
- Reporting: The EAM provides regular reports to the client on the performance of their portfolio.
Advantages of Using an EAM
- Independent Advice: Potentially less biased advice compared to using the bank's in-house wealth management services.
- Personalized Service: EAMs often offer more personalized attention and customized investment solutions.
- Access to Multiple Banks: Some EAMs work with several banks, giving clients access to a wider range of products and services.
- Potentially Lower Fees: Depending on the arrangement, EAM fees can sometimes be more competitive than traditional bank wealth management fees.
Considerations
- Due Diligence: It is crucial for clients to conduct thorough due diligence on any EAM before entrusting them with their assets.
- Regulation: Ensure the EAM is properly licensed and regulated by the appropriate authorities.
- Conflicts of Interest: Understand how the EAM is compensated and any potential conflicts of interest that may exist.
In conclusion, an External Asset Manager offers an alternative approach to wealth management by providing independent advice and managing assets held at a separate banking institution, aiming for personalized and unbiased investment strategies for their clients.
